Your Tour Operators' Margin Scheme (TOMS) tax point determines when a booking counts for VAT. Method 1 uses departure or first occupation of accommodation, whichever happens first. Method 2 can bring that date forward when payments exceed 20 per cent of the selling price, including payments added together.
A booking can have several dates: reservation, invoice, deposit, balance and departure. The useful question is which date feeds your tax calculation.
For the wider rules on travel you buy and resell, start with the Tour Operators' Margin Scheme guide.
What are the two TOMS tax point methods?
A tax point is the date your supply becomes taxable. These methods cover your Margin Scheme supplies and any in-house supplies sold within a Margin Scheme package. In-house means services you provide from your own resources, or create by materially changing what you buy (709/5 paras 2.12 and 4.13).
Method 1: the tax point is the traveller's departure date or the first date they occupy any accommodation, whichever happens first. A payment before that date does not bring the tax point forward under this method (709/5 para 4.13).
Method 2: compare the same departure or accommodation date with the date you receive a qualifying payment. Whichever happens first creates the tax point. Receipt includes money collected by a travel agent on your behalf (709/5 para 4.13).
You choose a method and keep using it, unless HMRC gives written permission to change. Permission is available only in exceptional circumstances. A change will not normally be allowed midway through a financial year (709/5 para 4.13). This is no quarterly pick-and-mix.
With quarterly returns, the tax point determines which quarter's provisional calculation includes the relevant selling-price amount. Your annual selling-price total includes supplies with tax points during that financial year (709/5 para 6.1 and section 13, TL4 paragraph 3).
During the year, you account for VAT provisionally. Your annual calculation establishes the tax due using the year's figures (709/5 paras 5.1 and 5.12).
How does the method 2 payment threshold work?
Under method 2, payment of the whole selling price creates a single tax point on receipt. This applies if received before departure or first occupation. Where you receive instalments, you may have several tax points for one holiday (709/5 paras 4.13 and 4.14).
Each payment exceeding 20 per cent of the selling price creates a tax point for that amount. Payments also count together: amounts received and not already accounted for create a tax point when their combined total exceeds 20 per cent (709/5 para 4.14).
Exactly 20 per cent does not cross this payment threshold. Several smaller payments can cross the threshold together, even though none crosses it alone (709/5 para 4.14).
Any amount outstanding must be accounted for at departure or first occupation of accommodation, whichever happens first (709/5 para 4.14).
If a travel agent collects for you, the relevant receipt date is theirs (709/5 para 4.13). Waiting for their transfer to reach your bank can shift your records into the wrong period.
Method 2 does not let you use the Cash Accounting Scheme for TOMS because TOMS has special tax point rules (709/5 para 4.15).
In practice, build a payment history for each booking, keeping the agreed selling price beside it. A single field marked "deposit paid" cannot show when several smaller payments crossed the threshold.
Can method 2 split one holiday across two financial years?
Illustrative example, not a real business.
Hannah's tour operator uses method 2 and has a 31 March year end. A customer books a £3,000 holiday in January, departing in May. Twenty per cent of the agreed price is £600.
The payment dates create the following result. Amounts with a tax point before the year end enter that year's calculation. Amounts with a later tax point enter the next year's calculation (709/5 paras 4.14 and 6.1).
| Payment | Threshold test | Tax point and financial year |
|---|---|---|
| £500 deposit in January | Below £600, which is 20 per cent of £3,000. | No tax point yet. |
| A further £400 in March | Total receipts reach £900, exceeding £600. | £900 has a March tax point and belongs to the year ending 31 March. |
| £2,100 balance in April | The balance exceeds £600. | £2,100 has its own April tax point and belongs to the next financial year. |
One holiday now contributes selling-price amounts to two financial years. Keeping the booking as one undivided entry in a departure report would hide that split. Hannah needs the payment history alongside the departure date.
Under method 1, the whole £3,000 would instead have its tax point in May, on departure. The booking date and earlier receipts would not change that result (709/5 para 4.13).
In an alternative outcome, the customer cancels in April before paying the balance and forfeits the £900. Under method 2, that £900 goes into the selling price because receipts exceeded 20 per cent of the agreed price. Under method 1, it would stay out (709/5 para 6.1).
The example tracks selling-price amounts entering the calculation, which are not themselves the VAT bill. For bought-in Margin Scheme supplies, VAT is accounted for on the margin between customer receipts and supplier costs (709/5 para 2.6).
Do forfeited deposits and cancellation fees count?
Under method 2, forfeited deposits and cancellation fees enter your selling price where total receipts exceed 20 per cent of the agreed price (709/5 para 6.1).
Under method 1, those forfeited deposits and cancellation fees stay out of your TOMS selling price. They also stay out under method 2 where you received 20 per cent or less of the agreed price (709/5 para 6.1).
Refunds for unsatisfactory service and discounts agreed with your customer come off the selling price (709/5 para 6.1).
A hotel's own deposits outside TOMS follow different rules. Most are advance payments taxed when received, and a retained deposit stays taxable if the guest cancels. It cannot simply be renamed a cancellation charge (709/3 paras 7.1 and 7.2). TOMS has its own rules for travel you resell, set out above.
For your records, separate the cancellation date, amounts received, amounts kept and any refund. A "cancelled" status alone tells you very little about the payment history you need to review.
What should you check this quarter?
Start with a small selection of bookings crossing your quarter end or financial year end. Compare the payment history with the amounts feeding your calculation. Include bookings sold through agents and any cancellations.
Under method 2, the payment pattern can create tax points before travel starts. The invoice date does not replace the receipt, departure or accommodation dates specified by these rules (709/5 paras 4.13 and 4.14).
- Confirm which tax point method your business uses and record it clearly.
- Keep the agreed selling price, departure date and first accommodation date together.
- Record each receipt separately, including payments collected by agents.
- For method 2, track amounts already accounted for and payments awaiting a tax point.
- Review outstanding balances when travel starts, alongside cancellations, refunds and discounts.
- Check that bookings crossing your year end retain their full payment history.
Your bank statement can help you reconcile cash, but the booking record supplies the context. Our explanation of why TOMS figures come from bookings, not the bank takes that recordkeeping point further.
Our accountants for travel agencies and tour operators can review your method and payment records, so you can see how each booking reaches the figures.
Frequently asked questions
Is a holiday deposit taxed when I receive it?
Under the Tour Operators' Margin Scheme (TOMS), a deposit does not automatically create a tax point. Method 1 uses departure or first occupation of accommodation, whichever happens first. Method 2 can bring that date forward when payments exceed 20 per cent of the selling price, including payments added together.
What if a travel agent takes the payment for me?
Under method 2, receipt by a travel agent on your behalf counts as receipt by you. Use the date the agent receives the customer's payment when applying the payment threshold. Waiting until the agent transfers the money to your bank could put the tax point in the wrong period.
Can I switch from method 2 to method 1?
You need written permission from HMRC to change tax point methods. Changes are allowed only in exceptional circumstances and will not normally be allowed midway through a financial year. Starting a new financial year does not, by itself, give you permission to switch methods.
Do forfeited deposits count in my TOMS sales?
Under method 2, include forfeited deposits and cancellation fees in your Tour Operators' Margin Scheme (TOMS) selling price where total receipts exceed 20 per cent of the agreed price. Exclude them under method 1, or under method 2 where you received 20 per cent or less.
Sources
Every rule in this article was checked against these pages on 22 October 2026.
